By Nathan Conz

The Monday, June 4, afternoon session, "Legacy Systems - When to Hold 'Em and When to Fold 'Em," at the IASA 2007 Educational Conference & Business Show, held in Minneapolis, Minn., touched on many common concerns held by insurance company IT professionals regarding the replacement of legacy systems.

Panelist Marcus Ryu, vice president of strategy and new products at Guidewire Software (San Mateo, Calif.) described that decision as a fork in the road. Some carriers decide to place a new front end on an existing legacy system, while others undertake a longer, more costly full replacement.

While adding a new front end may be a less painful endeavor, it's not always the right choice, many of the panelists suggested. Legacy systems, in a growing number of cases, have become a key source for enterprise risk. There are compliance issues, of course, but also concerns regarding the changing workforce demographics. As older workers retire, years of legacy system knowledge are being lost.

Further, some insurers look at their legacy systems as roadblocks for innovation. "There's broad consensus among insurers that there are things they'd like to do that their legacy systems prevent them from doing," Ryu said.

Because these key business drivers are abstract, it can sometimes be difficult to justify the high cost of legacy replacement to the business. "There is an opportunity cost that goes into replacing a core legacy system," explains George Grieve, CEO of CastleBay Consulting, who described legacy replacement as changing the engines on an airplane in mid-flight.

That "mid-flight" challenge, where a legacy system must be integrated with an incoming system during the implementation process (to keep core business process running throughout), was of particular interest to many attendees, who helped steer the topics of conversation at the event.

Guidewire's Ryu initiated perhaps the event's most lively discussion when he wondered aloud about bringing up a new system in parallel to a legacy system, without integration points. New business would go on the new system, and old business would migrate over as policies were renewed.

"It may be a lot less risky than a re-build," Ryu said.

Reaction to Ryu's brainstorm was mixed, some attendees considered it a viable alternative, while others were wary of the trade-offs inherent in such a project, like the possible need for two separate teams to run the two systems. Many were doubtful that the business would accept such a plan.

"It's an interesting idea, but selling that uptown will be difficult," said Main Street America Group (Jacksonville, Fla., $843 million in net written premium) IT director Bill Garvey, the panel's lone carrier representative.

Garvey also said his company has implemented many new systems over the past several years, with varying degrees of success. He believes that the technology options available to replace core systems now are more effective than those available back in the first part of the decade, although he still sees room for improvement.

"We all looked and said 'we gotta have it,'" Garvey said when recalling those earlier years. "At the time, I don't think the software companies were ready. I still not sure [vendors] are entirely there yet."

Today though, many more software options are well written, a fact that will make the programs more effective when they become legacy systems in 15 to 20 years, some panelists said.

"What's most encouraging is that this generation's software vendors are fundamentally better [than those in the past]," CastleBay's Grieve explained. "If you can have a set of legacy systems in 20 years that you can still use, you're going to feel a lot better about things than you do now."

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